Lyft Inc. (LYFT) will debut the biggest U.S. IPO in five years Friday as shares in the ride-hailing group open for trading on the Nasdaq in a move that could trigger a wave of more than $50 billion in new listings as so-called 'Unicorn' start-ups tap bullish investor sentiment.
Lyft priced 32.5 million shares at $72 each, a level that raises just over $2.3 billion for the San Francisco, California-based group and values the rival to Uber Technologies at around $24.3 billion. It also comes ahead of a line-up of more than 300 companies preparing to list over the coming year, according to data compiled by Bloomberg, that could attract as much as $50 billion from investors around the world.
"The system will not be able to handle the flood of retail orders mixed with the colossal mutual funds who say they are owed stock because they kept Pinterest and Lyft, as well as the sub--optimal Chinese IPOs and whatever else has blown in from the window," TheStreet's founder, Jim Cramer, cautioned last week.
"The whole market now sinks from the supply, it's the summer and we are all left with the riptide of equity that has no place in the market," he added. "That's when you have to be careful. That's when the market gets hammered."
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Lyft shares opened with an initial trade at $87.24 each, some 21.72% ahead of its set price, a move that adds $5 billion to its market value and outpaces the entire year-to-date gain for the Nasdaq Composite.
Lyft, as well as planned IPOs from so-called decacorns -- companies like social media group, Pinterest, ride-sharing giant Uber and room-sharing group AirBnb that have a $10 billion value -- as well as smaller groups Slack Technologies and Postmates, come at a pivotal junction for equity markets, which look set to booked their best quarterly gains since 2009.
However, slumping global government bond yields, slowing economic growth signals and the ongoing uncertainty of U.S.-China trade talks and Britain's delayed departure from the European Union have combined to piece stock market sentiment and pull risk-seeking cash onto the sidelines.
Bank of America Merrill Lynch said Friday that some $37.6 billion in U.S. equity outflows were recorded over the three months ending in March, with investors heading into the second quarter "secular stagnation and deflation" assets with a focus on near-term corporate profits.
That's could be bad news for the host of growth companies planning to tap the markets, including Lyft, a company that, according to Benjamin Stoto, research director for CNBC's Mad Money team, is "on the right side of secular demographic shifts" but also suffers from red flags from "a lack of profitability to a voting rights structure that, while increasingly common, we're not big fans of."
"Obviously, the thing that stands out from the Lyft IPO in general - the reason this is such an exciting deal - is the company's outsized growth profile," Stoto noted, citing revenue growth of 103% year-on-year, at $2.16 billion, in 2018.
However, he also cautioned that "to keep what is sure to be a highly-valued stock on track, (Lyft) will need to stay on trend here, continuously improving its margins and, eventually, turning them positive."
Much the same can be said for Uber, a company that is expected to be valued at $120 billion when it lists later this spring, but has nonetheless failed to turn a profit as single-ride prices continue to be subsidized by the company's early investors, including Japan's Softbank Group (SFTBY) and Amazon Inc. (AMZN - Get Report) founder Jeff Bezos.
Lyft's listing might be unique, in that it's not only the largest since Alibaba Holding's BABA debut in 2014 but it's also the precursor to such an enormous wall of money waiting to tap a slew of "new economy" companies.
It's performance, both Friday and beyond, will be an important signal for the market as it heads into some difficult second and third quarter headwinds.
"In the context of the sudden and rapid market downturn at the end of 2018, investors are looking to Lyft's IPO to set the tone for the rest of unicorns," said DJ Kang, CEO of the consumer finance research firm ValueChampion.
"Thus far, that Lyft is still garnering a $20-24bn valuation despite burning $1bn per year is a positive sign for upcoming IPOs. It signals that the public market still has the appetite to massively fund companies that might not be profitable for years to come."